High-End Retailers Report Strong Profits, but Walmart Still Struggles

High-end stores like Macy's that focus on higher-income customers crowed about the solid prices that shoppers paid, which boosted sales in their fourth quarters.Credit
Eduardo Munoz/Reuters

The holidays turned out to be a lot brighter at the high end, judging by the results of four major retailers who reported earnings on Tuesday.

Walmart, Macy’s, Home Depot and Saks Fifth Avenue all reported sales increases for their fourth quarters ending in January. But while Walmart had to lower prices so aggressively that it hurt its profit, retailers focusing on higher-income customers crowed about the solid prices those shoppers paid.

For consumers with higher incomes, “I think there’s generally more confidence today than there was at this time last year,” said Macy’s chairman and chief executive, Terry J. Lundgren. But, he added, where someone is “making decisions between filling up their gas tank or buying shoes or a handbag, that consumer certainly is more impacted.”

Walmart has been holding down prices to get customers to spend. “We’ve seen the unemployment numbers come down a little bit, and that’s really good, but that hasn’t stopped the paycheck cycle,” said Charles M. Holley Jr., Walmart’s chief financial officer, referring to customers spending paycheck-to-paycheck.

Price cuts meant Walmart’s fourth-quarter margin in the United States decreased by $100 million. For the company as a whole, fourth-quarter margin fell by 0.4 percentage points, to 24.3 percent of sales.

Saks Fifth Avenue, meanwhile, which said it was selling items like fine jewelry, fragrances and men’s accessories at a fast clip, had a “historically high gross margin rate performance,” said the chairman and chief executive, Stephen I. Sadove, in a statement. There was “reduced promotional activity” throughout the year as the company increased its full-price sales, and its margins for the year rose to 40.8 percent of sales, from 40.1 percent. For the quarter, margin fell 0.2 percentage point to 37.6 percent.

At Macy’s, a decline in margin was not because of lower prices throughout the store, but because of a free-shipping promotion and markdowns on cold-weather gear, said Mr. Lundgren in an interview. Holiday discounts “were about the same level as last year and they were all planned,” he said.

The average price paid for items at Macy’s and Bloomingdale’s rose 9 percent in the quarter, because of some inflation in commodity costs and better sales of expensive items like jewelry.

Mr. Lundgren added that the Bloomingdale’s business was particularly strong. “The Bloomingdale’s customer is categorized as that consumer who’s buying more luxury product, and that business was very good, and you’ve seen that from some of the other luxury retailers,” he said.

Macy’s gross margins declined by 0.3 percentage point for the quarter and for the year, but its margins, at 40.4 percent for the year and 41 percent for the quarter, were much higher than Walmart’s.

Home Depot said that sales at stores that had been open at least a year, also known has same-store sales, had increased in 13 of its 14 categories, and that it was seeing improvement in the professional-contractor sector. Sales in states where housing markets were particularly hard-hit by the recession, like Florida and California, were continuing to improve.

“The performance of our business, particularly in the back half of 2011, would suggest a strengthening market,” said Home Depot’s chairman and chief executive, Frank Blake.

Same-store sales rose 5.7 percent for the fourth quarter. And two indicators of high-end momentum also rose: transactions over $900 increased by 3 percent, while the professional-contractor business, which handles expensive home renovations, posted increases in transactions and the amount spent. “We’re starting to see the beginnings of an improvement among the professional contractors, which is great,” said Carol B. Tomé, chief financial officer.

The company said Tuesday that its domestic sales grew 2.4 percent in the quarter, to $72.8 billion, while sales at stores open at least a year increased 1.5 percent.

To achieve that, though, Walmart’s domestic profit margin slipped lower. Throughout its divisions, the company’s consolidated net income fell 13 percent for the quarter, but Mr. Holley said in a telephone call with reporters that the drop was because of a net income number a year ago that was buoyed by a tax benefit from the disposal of a German business. He said the more accurate number to look at was income from continuing operations, which rose 3.4 percent for the quarter, to $5.2 billion.

Sales rose 5.8 percent to $122 billion.

Executives said customers took advantage of programs like layaway over the holidays and responded to the 10,000 or so items that Walmart had brought back to stores. Visits to stores and the average amount spent per visit both rose during the quarter.

January 2012, the last month of the quarter, was the strongest month in terms of sales and traffic, Mr. Holley said. The company did not offer layaway after the holidays.

“It wasn’t the time that we had the layaway — that speaks to the momentum we have in the Walmart business,” he said. “We feel very good about where we are with market share grabs in most categories that we operate in.”

“Top-line results were generally in line with expectations, but surprisingly did not demonstrate any improved momentum versus” levels in the third quarter, a Sanford C. Bernstein analyst, Colin McGranahan, wrote in a note to clients.

Macy’s net income rose almost 12 percent from the fourth quarter a year ago, to $745 million, while its same-store sales rose 5.2 percent. Online sales for Macys.com and the Bloomingdales.com unit rose 40 percent from a year ago, and the company said it expected online sales in 2012 to exceed $2 billion.

At Home Depot, net income for the fourth quarter increased 32 percent to $774 million, while sales rose 6 percent to about $16 billion.

A version of this article appears in print on February 22, 2012, on Page B2 of the New York edition with the headline: High-End Retailers Report Strong Profits, but Walmart Shoppers Still Struggle. Order Reprints|Today's Paper|Subscribe